BBC’s Commercialism May Have Peaked, Says Lehman Brothers

According to a new report from analysts at Lehman Brothers, a failure by the BBC to move away from the alleged rampant commercialism of recent times could result in the introduction of an unfavourable funding structure when the charter is renewed in three years’ time. This is perhaps a small piece of good news for ITV, which is currently struggling to maintain viewing numbers and advertising revenues (see INSIGHTanalysis: ITV1 Share Further Eroded In 2002).

Another positive for ITV, says Lehman Brothers, is that the BBC’s strong commitment to digital channels is likely to drive digital uptake and this will boost the digital dividend. The dividend is offered by the Government to ITV in return for converting analogue customers to digital.

However, whilst ITV might benefit from a cash boost as viewers turn to digital, it may not enjoy an equivalent audience boost if they are turning to the BBC’s and commercial rivals’ channels (see ITV Could Lose Audiences To Freeview In 2003). Both ITV and the BBC are losing viewers to multi-channel stations, although ITV1’s decline has been marginally steeper than BBC1’s in the last few years, as the graph here illustrates.

The report – Market Failure In UK TV, BBC Charter Renewal And Implications For ITV – claims that a fundamental change in the Corporation’s funding structure is an unlikely outcome of the new charter, despite a pledge from culture secretary Tessa Jowell that there will be a full and open debate about the future of BBC funding.

Currently, the BBC is funded primarily through the £112 per annum licence fee; this is supplemented by its commercial enterprises. Combined, the BBC had revenues of £3.4 billion in 2002, the largest of any UK broadcaster. Each year the cost of the licence rises by RPI plus 1.5%, but Lehman analysts think it is unlikely that these ‘generous’ terms will be repeated on renewal in 2006.